Belgian Monetary Reform: 1944–1945

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The Belgian monetary reform, although not radical, was among the most thorough in post–World War II Europe. Numerous European countries, freshly liberated from Germany, found themselves awash in currency that had been spent lavishly to pay soldiers and finance military expenditures. Monetary reform aimed at soaking up a flood of currency was common in the liberated countries, including France and Italy, in an effort to avoid the hyperinflation debacles that followed World War I.

The Belgian government-in-exile returned to Brussels in September 1944 with plans in hand to reform the Belgium currency. In the course of the war the Belgian money supply had climbed 250 percent without commensurate increases in price levels, creating a situation ripe for a round of runaway inflation. Bank notes were up 350 percent and bank account money was up 125 percent. Either the money stock needed to decrease rapidly, or prices would soar.

Few European countries thought in terms of returning to prewar exchange rate parities, and Belgium was no exception. Before the war, the Belgian franc had traded at 145 francs to the pound sterling and 30 francs to the U.S. dollar. The postwar Belgian authorities aimed to maintain an exchange rate of 176.6 francs to the pound sterling, and 43.70 francs to the U.S. dollar.

The Belgian government had new currency printed in England. In October 1944 all Belgian notes over 100 francs were frozen. In five days a census of circulating cash was completed, and the process of distributing the new currency began. Each family could exchange 2,000 of the old francs for the new francs on a one-to-one basis. More exchange took place, up to certain limits, to replace old francs in notes, bank accounts, and post office accounts. Up to 60 percent of these funds were blocked, unavailable for conversion into new francs. These blocked funds could be used for certain purposes, such as special taxes, including war profiteering taxes, which ran as high as 100 percent for German collaborators. Noncollaborators paid war-profiteering taxes up to 80 percent.

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The immediate result of these actions was the reduction of note circulation from 300 billion Belgian francs to 57.4 billion. By December 1944 the Belgian money stock had grown to 75 billion, and it grew rapidly in the following year as British and American troops used Belgium as a base.

Belgium’s gold holdings had been moved to France for safekeeping, which, however, did not prevent the Germans from capturing them. The Belgian government sued the French government in American courts, charging French negligence in securing Belgium’s gold. The American courts ruled in favor of Belgium, and awarded Belgium compensation out of French gold reserves held in the United States. Later all gold that the Germans confiscated from Allied governments was recovered, allowing France to recoup its payment to Belgium.

With heavy British and American expenditures in Belgium, coupled with the recovery of its gold reserves, Belgium emerged from the war with an abundance of monetary reserves, sufficient to support a stable currency